ISP98 Form 2 - Model SBLC Providing for Extension

Introduction & How to Use:

ISP98 Model Form 2 is a template for a Standby Letter of Credit (SBLC) providing for extension and incorporating annexed Form of Payment Demand with Alternative Non-Extension Statement.

The download links below offer a fillable Word file that can be edited, copied, or modified as you want for use in your systems. The second item also has the template, but includes explanations and annotations to aid the specialist to understand how to use this Form.

Further explanation of this Form is available at the bottom of this page.

📄 Download Fillable, Customizable Forms:

• Download the Fillable ISP98 Model Form 2 (MS Word file)
• Download the Annotated ISP98 Model Form 2 (MS Word file)

Preview:

Standby LC Payment Demand

[name and address of beneficiary]
[date of issuance]

Issuance:
At the request and for the account of [name and address of applicant] (“Applicant”), we [name and address of issuer at place of issuance] (“Issuer”) issue this irrevocable standby letter of credit number [reference number] (“Standby”) in favour of [name and address of beneficiary] (“Beneficiary”) in the maximum aggregate amount of [currency/amount].

Undertaking:
Issuer undertakes to Beneficiary to pay Beneficiary’s demand for payment in the currency and for an amount available under this Standby and in the form of the Annexed Payment Demand completed as indicated and presented to Issuer at the following place for presentation: [address of place for presentation], on or before the expiration date.

Expiration:
The expiration date of this Standby is [date].[[1]]

Extension:
The expiration date of this Standby shall be automatically[[2]] extended[[3]] for successive one year periods, unless Issuer notifies Beneficiary by registered mail or other receipted means of delivery sent[[4]] to Beneficiary’s above-stated address [e.g. 30][[5]] or more days before the then current expiration date that Issuer elects not to extend the expiration date.[[6]] The expiration date is not subject to automatic extension beyond [date], and any pending automatic one-year extension shall be ineffective beyond that date.[[7]]

The expiration date may also be extended in accordance with the terms of an amendment issued by Issuer to which Beneficiary consents and in accordance with ISP98 rules on closure of the place for presentation on the expiration date.[[8]]

Payment:
Payment against a complying presentation shall be made within 3 business days after presentation at the place for presentation or by wire transfer to a duly requested account of Beneficiary. An advice of such payment shall be sent to Beneficiary’s above-stated address.

Drawing:
Partial and multiple drawings are permitted.

Reduction:
Any payment made under this Standby shall reduce the amount available under it.

ISP98:
This Standby is issued subject to the International Standby Practices 1998 (ISP98) (International Chamber of Commerce Publication No. 590).

Communications:
Communications other than demands may be made to Issuer by telephone, telefax, or SWIFT message, to the following:

[numbers/addresses]

Beneficiary requests for amendment of this Standby, including amendment to reflect a change in Beneficiary’s address, should be made to Applicant, who may then request Issuer to issue the desired amendment.[[9]]

                                                                      [Issuer’s name]

                                                                      ____________________
                                                                      [Name of Authorized Signer]
                                                                      [Title of Authorized Signer]

Annexed Payment Demand

[insert date]

[name and address of Issuer or other addressee at place of presentation as stated in standby]

Re: Standby Letter of Credit No. [reference number], dated [date], issued by [Issuer’s name] (“Standby”)

The undersigned Beneficiary demands payment of [insert currency/amount] under the Standby.

Beneficiary states that [chose one of the two following statements:][[10]]

Applicant is obligated to pay to Beneficiary the amount demanded [, which amount is due and unpaid] under [or in connection with] the agreement between Beneficiary and Applicant titled [agreement title] and dated [date][[11]]. Beneficiary further states that the proceeds from this demand will be used to satisfy the above-identified obligations and that Beneficiary will account to Applicant for any proceeds that are not so used.

or[[12]]

the Standby is set to expire fewer than [30] days from the date hereof, because Issuer has given a notice of non-extension of the Standby[[13]], and [[14]] the amount demanded is required as cash collateral to secure the unmatured or contingent obligations of Applicant under [or in connection with] the agreement between Beneficiary and Applicant titled [agreement title] and dated [date]. Beneficiary further states that the proceeds from this demand will be used to secure[[15]] the above-identified obligations and then to satisfy them as they become absolute and due and that Beneficiary will account to Applicant[[16]] for any proceeds that are not so used.

Beneficiary requests that payment be made by wire transfer to an account of Beneficiary as follows:

[insert name, address, and routing number of beneficiary’s bank, and name and number of beneficiary’s account].

                                                                      [Beneficiary’s name and address]

                                                                      ____________________
                                                                      [Name of Authorized Signer]
                                                                      [Title of Authorized Signer]

About the ISP98 Model Forms

Produced by the Institute of International Banking Law & Practice, the ISP98 Model Forms are designed to help standby users, including their regulators, to develop sound, workable, and appropriate texts for standbys in light of specialized standby practices and laws worldwide and can also be used for demand guarantees subject to ISP98.

These forms are fillable, editable, and ready to use.

See All ISP98 Model Forms

ISP98 Official Commentary

Rule by rule analysis, comparison, and recommendations for the ISP

Read it Here

Copyright © 2024 by the Institute of International Banking Law & Practice, Inc., www.iiblp.org (“IIBLP”).  Unlimited permission is hereby granted to copy and use this ISP98 form, including endnotes, for all purposes except publication for a charge to a purchaser or subscriber.

Additional Information on ISP98 Model Form 2

This ISP98 Form 2 model standby repeats the text of ISP98 Form 1.  It adds a provision for automatic extension and incorporates a model form of payment demand that adds an alternative beneficiary statement demanding payment because of the issuer’s action resulting in non-extension of the expiration date of the standby.  Like ISP98 Form 1, this Form 2 is intended to be self-contained and, absent special circumstances, useable without extended reference to the text of ISP98.

The endnotes to this standby include alternative and other optional terms of particular relevance to standbys providing for automatic amendment of an expiration date, as well as references to relevant ISP98 rules.  See the ISP98 Form 1 endnotes for explanation of wording that is common to ISP98 Forms 1 and 2 and for alternative and optional wording for general terms common to both forms.  (There are more than 30 endnotes to Form 1 that are not repeated in this Form 2.)

This form is published for educational purposes and not as legal or professional advice.  Potential users should consult with their own advisers in the drafting or use of a standby letter of credit.  ISP98 and letter of credit educational and training materials, including The Official Commentary on the International Standby Practices containing official interpretations of ISP98, are available from IIBLP at a cost, or free to DCW subscribers.

[[1]]: Expiration.  ISP98 Rule 9.01 (Duration of Standby) provides that “A standbys must: (a) contain an expiration date or (b) permit the issuer to terminate the standby upon reasonable prior notice or payment”.  Commercial law and banking regulations are likely to impose similar requirements.  As reflected in ISP98 Form 1, a standby may set an expiration date and leave the possibility of shortening or extending that date to future amendment(s) issued by the issuer to which the beneficiary consents, as provided in ISP98 Rule 2.06(b)-(d) (When an Amendment is Authorised and Binding).  Also, a beneficiary may seek the issuer’s consent to an amendment of the expiration date by requesting the amendment or by making an extend or pay demand.

[[2]]: Automatic amendment.  Many issuers are subject to laws, regulations, or internal policies that limit their incurrence of obligations that are indefinite or long term.  A common response to an applicant’s request for a medium or long term standby is to set a one year expiration date and then state in the standby that it automatically extends for successive one-year periods unless the issuer sends, or the beneficiary receives, advance notice of non-extension, as provided in ISP98 Rule 2.06(a) (When an Amendment is Authorised and Binding).  This ISP98 Form 2 reflects that common response.

Alternative responses include the following model clause for automatic early termination of the standby based on the issuer’s giving advance notice to the beneficiary, e.g.: “The expiration date of this Standby is [date].  The expiration date shall be automatically amended to an earlier date if Issuer notifies Beneficiary of the proposed earlier expiration date by registered mail or other receipted means of delivery sent to Beneficiary's above-stated address [30] or more days before the proposed earlier expiration date stated in the notice."

Another alternative is based on early payment, e.g., “The expiration date of this Standby is [date].  The expiration date shall be automatically amended to an earlier date if Issuer notifies Beneficiary by registered mail or other receipted means of delivery sent to Beneficiary's above-stated address that Issuer elects to terminate this Standby with Issuer’s payment to Beneficiary of the full amount available under this Standby and payment is made to Beneficiary, whereupon this Standby shall expire.”  See ISP98 Rule 9.01(b) (Duration of Standby).

ISP98 Rule 2.06(a) (When an Amendment is Authorized and Binding) makes “automatic amendments” effective without further notification or consent if the automatic amendment is expressly stated in a standby.  Accordingly, it is desirable to include the word “automatic” in any standby clause intended to make an amendment effective based on the terms of the standby and not by obtaining the beneficiary’s consent.  It is unnecessary to recite that an automatic extension is “without amendment” or that an automatic extension clause is a “condition”.

[[3]]: Automatic extension.  The words “extend” and “non-extension” are used, rather than “renew” and “non-renewal”, to avoid any doubt that the intent is to amend, rather than replace, the standby.

It is not desirable to include the word “evergreen” in an automatic extension clause.  The word “evergreen” is popularly used to refer to automatic extension clauses, such as the one included in this ISP98 Form 2.  However, this word cannot substitute for, or usefully supplement, an automatic extension clause.  See ISP98 Rule 1.10(c)(ii) (Redundant or Otherwise Undesirable Terms).

[[4]]: Send/receive.  Automatic extension clauses vary in the extent to which they spell out where and how a notice of non-extension must or may be sent to, or be received by, the beneficiary in order to establish an expiration date that is not subject to further automatic extension.  For alternative wording, consider: “…is sent to Beneficiary’s above-stated address by registered mail or by [inter]nationally recognized courier or is received by Beneficiary at Beneficiary’s above-stated or current address….”  Under ISP98 Rule 4.11(c)(ii) (Non-Documentary Terms or Conditions), standby requirements based on when, where, and how issuer notices are sent or received by the issuer or beneficiary are effective.  However, there may be practical difficulties in proving when an issuer’s non-extension notice was sent to or received by the beneficiary.  Strict compliance concepts applicable to beneficiary presentations under a standby are sometimes applied to issuer notices to a beneficiary.  Some standbys address these concerns by providing alternative beneficiary addresses or by providing that timely actual receipt of notice by the beneficiary is sufficient.

If notice by e-mail, telefax, or the like is also to be permitted, then the automatic extension clause should state the alternative, e.g. “Such notice may also be given by [e-mail] [telefax] [authenticated SWIFT message] sent to the following Beneficiary [address][number].…” 

[[5]]: 30 days/one year.  A 30-day period for giving or receiving a notice of non-extension is common, but shorter (e.g., 15 days) and longer (e.g., 60 days) periods are also common. Although unnecessary, "calendar day" may be substituted for "day" to emphasize the distinction between "business day" and "banking day" which are defined in ISP98 Rule 1.09(a) (Definitions) and “day” which is not defined.  The length of the period is affected by the length of time expected for (i) the issuer to re-approve the applicant’s credit, (ii) the beneficiary to draw as permitted by the standby and the underlying transaction, and (iii) the applicant to replace the standby.

A one-year period for setting the initial expiration date and for the duration of automatic extension periods is very common.  It is based on the common practice of bank issuers that annually re-evaluate applicant credit-worthiness.

[[6]]: Retraction of non-extension notice.  Standby operations personnel may not receive credit approval for extension before the date required to initiate sending a timely non-extension notice and, as a result, may issue a notice of non-extension and later receive credit approval for extension.  The following optional model clause would permit a full right of retraction: “At any time before the next expiration date Issuer may retract its notice of non-extension and thereby automatically extend the expiration date as if its notice of non-extension had not been sent or received and may treat any pending (unhonoured) demand for payment based on non-extension as automatically retracted by Beneficiary.”

[[7]]: Final expiration date.  An end date for automatic extensions, even if it is set many years out, is desirable for record keeping purposes, particularly to avoid having to retain indefinitely proof that a standby was terminated by expiration following an effective notification of non-extension (or was honoured or otherwise reduced to zero).

[[8]]: Extension under ISP98 Rules 3.13 (Expiration Date on a Non-Business Day) and 3.14 (Closure on Expiry Date).  The initial or automatically extended expiration date stated in a standby may not be the last day on which a presentation may be made.  ISP98 provides for extensions for a presentation that is received during a weekend or holiday or that is attempted during a business day at a place of presentation that is closed for any reason.  Separately, ISP98 Rule 9.03(b) (Calculation of Time) provides that an extension period starts on the calendar day following a stated expiration date that falls on a day when the issuer is closed.  (This rule is intended to keep the same calendar date as the expiration date under an annually extended standby.)

[[9]]: Communications.  See ISP98 Form 1 endnote 20.  This optional clause is particularly apt for a standby that is long term or otherwise more complex than most standbys, such that communication from or to the beneficiary (apart from payment demands) may be expected.  An issuer may wish to expand this clause or the clause on giving notice of non-extension to the beneficiary, to assure that effect will be given to a notice duly sent but not (provably) received by the beneficiary, “A notice shown to have been delivered to the Beneficiary’s above address by mail or courier certificate, invoice, or the like shall be deemed received by Beneficiary and effective not later than 5 Business Days after the date of delivery shown thereon.”

[[10]]: Alternative Statements.  Depending on the terms of the underlying obligation, an issuer’s non-extension notice may entitle the beneficiary to a payment either that satisfies the underlying obligation or serves as cash collateral for an underlying obligation or that is not yet due.  ISP98 Form 2 contemplates that the beneficiary will present separate demands and statements if the beneficiary is entitled to make partial demands of both types.

[[11]]: First alternative statement (drawing to satisfy underlying obligation).  The first alternative beneficiary statement is substantially the same as the beneficiary statement in ISP98 Form 1.  This first alternative statement might be apt for a drawing made after sending/receipt of a non-extension notice, particularly if the underlying agreement entitled the beneficiary to accelerate an underlying debt obligation upon the imminent expiration of standby support.  Any such underlying agreement could limit the beneficiary’s right to accelerate to situations in which there was no retraction of the non-extension notice sent/received and no substitute standby was issued.

[[12]]: Second alternative statement (drawing to cash collateralize underlying obligation).  The second alternative statement would be apt for a drawing made after sending/receipt of a non-extension notice, particularly if the first alternative statement requires a statement that the amount demanded is due and if the underlying agreement does not treat imminent expiration of the standby as accelerating the underlying payment obligations.

[[13]]: Extend or pay demands.  ISP98 Rule 3.09 (Extend or Pay) provides that an “extend or pay” demand must be examined for compliance with the standby’s terms and conditions for honouring payment demands.  Imminent expiration would not excuse compliance with a requirement that a payment demand state that the underlying obligation is in default or the like.  It would not excuse compliance with a requirement that a payment demand state that the issuer has sent a notice of non-extension.  Accordingly, if the standby is to facilitate extend or pay demands, the standby text and the required form of payment demand in this model ISP98 Form 2 should be re-worded.

[[14]]: No retraction or standby substitution.  The required beneficiary statement might here add a statement that no retraction of the non-extension notice has been timely sent/received and that no permitted substitute standby (or other equivalent security) has been timely sent/received.  In such case, the 30 day period stated in the automatic extension clause in this ISP98 Form 2 should be reduced, e.g., to 15 days, to allow time for retraction or permitted standby substitution.  It is possible to include all of the features of a permitted standby substitution (or for the tender of permitted equivalent security), but ordinarily what is permissible should be spelled out in the underlying agreement and cross referenced in the beneficiary’s statement.

[[15]]: Proceeds as cash collateral.  Where the proceeds cannot or might not be used to “satisfy” the Applicant’s obligations, it may be appropriate to state that the proceeds are being used to “secure” them.  The terms permitting a drawing and then holding of cash collateral should be stated in an underlying agreement between the applicant and beneficiary, particularly if the cash collateral is to be held in an interest bearing or other special account.  Such terms may be stated also in the required form of beneficiary statement regarding the basis for the drawing and subsequent use of standby proceeds as security.

[[16]]: Accounting for proceeds.  As noted in ISP98 Form 1, the issuer may wish that the demand form state that the beneficiary must account to the issuer for any unused proceeds resulting from a drawing based on the issuer’s advance notice of non-extension and to take further steps to protect its interest in such unused proceeds.